SEMINAR REPORT ON INTERNATIONALISATION OF SERVICE FIRMS

A report submitted in partial fulfilment for the degree of Master of Business Administration Submitted To: Dr. SAHIL RAJ SubmittedBy: HARKIRAT BRAR M.B.A-Ist, SEC-F Roll No. 120425709

SCHOOL OF MANAGEMENT STUDIES PUNJABI UNIVERSITY PATIALA

TABLE OF CONTENTS
ACKNOWLEDGEMENT..3 PREFACE.4 INTRODUCTION5 WHAT IS INTERNATIONALISATION?................................................................................................8 SERVICE INDUSTRY.11 SERVICE AND INTERNATIONALISATION..13 THE CONTEXT OF SERVICE FIRMS15 GROWTH CAPABILITIES OF PROFESSIONAL SERVICE FIRMS17 GLOBAL CAPABILITIES OF SERVICE FIRMS.20 DISCUSSIONs..22 ADVANTAGES OF GOING INTERNATIONAL..23 DISADVANTAGES OF GOING INTERNATIONAL..24 TEN COMMON INTERNATIONALISING MISTAKES.26 IMPORTANT FACTORS FOR ACHIEVING SUCCES26 OUTSOURCING CHALLENGES FOR 201327 NETWORK OUTSOURCING SERVICES INDIA29 CONCLUSION..33 REFERENCES..34

ACKNOWLEDGEMENT

This seminar report has been made possible through the direct and indirect Co-operation of various persons, who have inspired me at every step of my work. It is a matter of pride for me to acknowledge my profound gratitude to my respected guide who always facilitates me in gaining practical knowledge.

I am very much obliged and thankful to my esteemed Guide MR.SAHIL RAJ for his valuable Cooperation and Guidance.

HARKIRAT BRAR

PREFACE

The report provides an opportunity to a student to demonstrate application of his/her knowledge, skill and competencies required during the technical session. Report also helps the student to devote his/her skill to analyse the problem to suggest alternative solutions, to evaluate them and to provide feasible recommendations on the provided data. The report is on the topic of INTERNATIONALISATION OF SERVICE FIRMS. Although I have tried my level best to prepare this report an error free report every effort has been made to offer the most authenticate position with accuracy.

INTRODUCTION

Effect of internationalization on Indian service industry has been very positive, though some industrial firms with the baggage of high cost, inefficient plants and processes inherited from the past because of closed economy's government dictated industrial policies and priorities had to face serious problems in the beginning. But soon most of the industries have become more and more efficient; customer focused and improved their international competitiveness in terms of costs, prices, product quality and variety. Industrial growth has been very high and strong during the past decade because of globalization. Exports have increased tremendously. Indian industries are also expanding abroad. Foreign companies have substantially increased their investments in Indian industries. Wages of industrial labour has increased substantially as they have become very productive. Lock out and strikes have declined to insignificantly low levels because industrial labor is happy. Those who cannot be efficient and past their prime age to retrain themselves in modern methods and processes have been retired with very attractive voluntary retirement schemes. The trade unions are finding it difficult to influence industrial workers into agitation because labor has started benefiting from the positive fallout of globalization on the prosperity and growth of the industrial sector. Talented and merited labor is commanding premium compensation in the labor market. Several new type of industries have also come up. Small scale industries of the past has fast grown into medium scale companies. Incidence of industrial sickness has gone done drastically .However, the communists will not agree to this view because with industrial workers becoming richer following increasing demand for and the wages of industrial labour .resulting from liberalization and globalization.

India has done very little reforms in agriculture to enable private and individual economic

initiative that would help harness the benefits of globalization. Despite this govt. created hurdles to globalization, Indian agriculture has benefited substantially from whatever little globalization that has been allowed in Indian agriculture. The farmers that got the exposure to global links of markets, technology and investment, benefited in terms of improving their yields, getting better prices and secured off take. In many areas of the country, tomato growers, potato farmers and fruit growers farmers benefited from tie-up and collaborations with ketchup, potato chips, fruit juices, etc. Indian agricultural exports have grown where Indian farmers in selected pockets are competitive: these include spices made from agricultural produce, flowers, mangoes, other fruits rice, vegetables, pickels, papads, tobacco, etc. The e-choupals network created by an Indian company and the spread of mobile telephones have provided on line market price and climatic information on on-line real-time basis and helped them to get the best prices and sell to the most attractive buyers and brought them freedom from the clutches of the middlemen and traders. Because of the resistance from the traders and the politicians, more and more farmers are not getting the benefits of globalisation: vested interests are stopping the entry of more professional and honest buyers of agricultural produce of high quality for supply to urban areas through network of malls. Fishermen in Kerala have increased their incomes using mobile phones to find out the best mandis where the prices are the highest on each day. There have not been any negative effect of globalization on Indian farming. But faulty and restrictive policies of Indian politicians have made it difficult for farmers to consolidate their holdings for larger scale commercial farming, access to large, high paying buyers with retail chains, support of well-organized transparent mandis not ruled by traders. As a result in many areas farmers have committed suicides because of crop failures and high indebtedness. Using the old British Indian laws of land acquisition, the state govts. are forcing farmers to sell their lands for industries at prices they consider

justified rather than asking industrialists and companies to bid for agricultural land which will increase the market prices of land,. Once these policy impediments are removed, globalisation will proceed in Agriculture and farming in the proper way and benefit Indin agriculture and farming throughout the country. India does not need all the land under agriculture now for agricultural use: much less area would suffice to feed the nation and export if agricultural productivity can be raise substantially through private investment in agriculture by companies that need agricultural produce for their business growth and India's economic growth.

WHAT IS INTERNATIONALISATION ?

Definition: The process leading to identifying and entering international markets In real terms: Usually implemented by: set up subsidiary (sales & production) production) by buying an existing company or by buying an existing company or creating a new one establish strategic alliance with one or more partners (local or with one or more partners (local or international)

AN EXAMPLE OF INTERNATIONALISATION
A British Princess and her Saudi Arabian boyfriend died in Paris after being treated by Swiss doctors with American medicines while their German BMW car driven by a drunken Turkish driver consuming excessive French wine and chased by Italian Paparazzi crashed against a river tunnel.

This news is being sent as SMS by an Indian journalist using a Chinese made Nokia handset with a Singaporean Airtel simcard smuggled from Korea and using Orange network of Thailand.

PROCESS OF DECIDING TO GO INTERNATIONAL

Answer the following questions:

market (i.e. competition, trade policy, regulatory (i.e. competition, trade policy, regulatory environment)? they support plans for overseas expansion? you conducted the necessary research to you conducted the necessary research to confirm that real opportunities exist abroad? If so, do you have the required resources (financial, technical & human) to go ahead?

Developing an international perspective Consider the following:

researching the market

ssary visit the location and find out first hand about potential customers, markets, local about potential customers, markets, local conditions negative factors before going ahead can you realistically make money by venturing into overseas markets?

Then ask yourself:

to enter your selected overseas market i.e. economy sound, politically stable? an international marketing plan? nce goods / services have been delivered? e risk having considered all the issues and ramifications of going overseas?

Final steps:
step-by-step export plan to facilitate implementation

ning when things have to happen and deadlines for completion of tasks monitoring mechanism so that you can that you can follow up on how youre performing overseas

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SERVICE INDUSTRY
The service industry forms the backbone of social and economic development of a country. It has emerged as the largest and fastest-growing sectors in the world economy. The service sector has shown a growth rate higher than that of agriculture and manufacturing sectors. This sector covers a wide range of activities, such as trading ,transportation, communication, financial, real estate and business services. In India, the services sector, as a whole, contributed as much as 68.6 per cent of the overall average growth in gross domestic product (GDP) between the years 2002-The most important services in the Indian economy have been in the health and education sectors. These are one of the largest and most challenging sectors and hold a key to the countrys overall progress. A strong and well-defined health care sector helps to build a healthy and productive workforce. The era of economic liberalisation has ushered in a rapid change in the service industry. As a result, over the years, India has been witnessing a transition from agriculture-based economy to a knowledge based economy. The knowledge economy creates, disseminates, and uses knowledge to enhance its growth and development. One of the major functional pillars of this economy is Information Technology (IT) and IT-enabled services (ITeS) industry. IT continues to be a dominating sector in the overall growth of the Indian industry. Been one of the fastest growing sectors both in terms of turnover and employment. Many national and global players have been investing in the retail segment and making all out efforts to further expand the sector. The service sector holds immense potential to accelerate the growth of the economy and promote general well-being of the people. They offer innumerable business opportunities to the investors. They have the capacity to generate substantial employment opportunities in the economy as well as increase its per capita income. Without them the
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Indian economy would not have acquired a strong and dominating place on the world platform. The service sector consists of the "soft" parts of the economy, i.e. activities where people offer their knowledge and time to improve productivity, performance, potential, and sustainability. The basic characteristic of this sector is the production of services instead of end products. Services (also known as "intangible goods") include attention, advice, access, experience, and discussion. The production of information is generally also regarded as a service, but some economists now attribute it to a fourth sector, the quaternary sector. The tertiary sector of industry involves the provision of services to other businesses as well as final consumers. Services may involve the transport ,distribution and sale of goods from producer to a consumer, as may happen in wholesaling and retailing, or may involve the provision of a service, such as in pest control or entertainment. The goods may be transformed in the process of providing the service, as happens in the restaurant industry. However, the focus is on people interacting with people and serving the customer rather than transforming physical goods. For the last 100 years, there has been a substantial shift from the primary and secondary sectors to the tertiary sector in industrialised countries. This shift is

called tertiarisation. The tertiary sector is now the largest sector of the economy in the Western world, and is also the fastest-growing sector.

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SERVICES AND INTERNATIONALISATION

Services, especially those requiring strong local know-how, are among the least global industries. Historically, professional services were delivered locally, and thus most professional service firms were small, local organizations. Technological advances and deregulation in recent generations have enabled the emergence of ever-larger national, and even global, professional service firms (PSF). Not only are these firms geographically diverse, but they are increasingly diversified with respect to the variety of professional specializations offered. Big accounting firms, for example, have diversified their geographical presence and operational scope, moving from auditing to consulting to information technology management. The organizational challenges for firms growing, diversifying, and changing from their traditional forms are obviously substantial. International professional service firms sometimes have to battle the liability of newness along with the liability of foreignness. We begin this paper with a theoretical framework for understanding various aspects of an effective globalizing professional service firm. We integrate aspects of transaction cost economics (the resource-based view of the firm) and organizational learning to understand what it takes for a firm to transfer its competencies from a national market to an international market. Services are generally described as being invisible, intangible, non-fungible, ephemeral, non-storable, with a high fixed-to-variable cost ratio, and characterized by simultaneous production-consumption that requires close interactions between producer and user . Managerial responses to characteristics like invisibility and intangibility include investing in branding and promoting a reputation, whereas characteristics like non-storability and higher fixed-to-variable cost ratios imply relatively high pressures to sell (Porter, 1980).

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Consequently, services tend to be highly dynamic industries, competitive, and with intangible resources being the most likely to contribute to successful competition and value creation . International professional services, such as accounting, consulting, and law, are particularly difficult to manage because they embody additional knowledge capital requirements, problems in transferring know-how across organizational and national boundaries, and operations across distinctive institutional and legal systems for which local knowledge is needed.A number of theories are useful to explain the internationalization of professional business service firms. Transaction cost theory argues that because organizations exist to provide a more efficient way (than markets) to conduct business, firms continuously need to strive for efficiencies in order to survive.

Efficiencies for internationally expanding firms may come from economies of scale, economies of scope, and experiential knowledge. Larger professional service firms, for example, are more likely to go global because they can achieve economies of scale and accumulate resources, and experience diminished opportunities in their domestic markets (Alon and McKee, 1999). However, a firms ability to succeed in foreign markets requires an overall capability to achieve both revenue and cost benefits. This is a set of dynamic capabilities that includes ongoing filtering and learning from new sources of information about clients, competition, costs, and technologies. Experiential knowledge is one of these capabilities that reflect the firms capacity to exploit such knowledge in an ongoing and effective way. The firm's ability to accumulate and exploit these capabilities necessarily varies with its degree of globalization.

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THE CONTEXT OF SERVICE FIRMS

Professional services more likely to be customized from country to country to take the local legal and other environmental conditions into account, but also there are minimal economies of scale achievable by centralized production. One powerful pull to globalize is from client demand for the service provider to follow them in overseas expansion activities (Rose, 1998). Lwendahl (1997) presents three categories of clients that may benefit from an internationalized PSF, namely (1) global clients that prefer the same service provider in the various country markets in which they do business, (2) local clients that require some globally standardized services, and (3) local clients who simply prefer a global professional service provider for a variety of reasons like perceived quality, global knowledge- sharing opportunities, or personal preferences. So there seems to be some combination of contingent financial rewards and pulls from existing clients that induces PSFs to cross national borders. On the one hand, the vast majority of professional firms are tiny, comprising perhaps a single professional or a small partnership, and their work is mainly local, be it helping transfer a home from one family to another, preparing tax returns, or designing residential buildings. On the other hand, global PSFs tend to focus more on large corporate or governmental clients, providing services like audits for global firms, designing commercial buildings, and providing investment banking, major litigation, corporate consulting, and transactional law. These large professional firms are highly competitive and profit-oriented, and they

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place substantial emphasis on the annual ratings of the firms based on various profitability and growth measures. .

Why do PSFs become global?

Apart

from the obvious perception that foreign markets present good business

opportunities, an important pull to internationalize is from clients who demand that the service provider follow them in overseas expansion activities Further, a firm's proven ability to shift its product-market focus (i.e., diversify) is also a defensive foil against possible invasion of its turf by competitorsa proven capability for retaliation against a competitor entering a firm's home turf, or at least a credible threat of a counterattack, is a signal that warns off the threat of new entrants (Porter, 1980). So there seems to be some combination of contingent financial rewards, pulls from existing clients, needs for specialized services in global markets, and deterrence that induces PSFs to cross national borders.

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GROWTH CAPABILITIES OF PROFESSIONAL SERVICE FIRMS Early growth

The first step a PSF makes beyond its traditional domain (locality or product line) is to test its legitimacy as it may suffer from a liability of newness. The liability of newness suggests that newer organizations are at a greater risk of failure than older organizations because they depend on others, have low levels of legitimacy, have loose structures, suffer from the liability of smallness, and are unable to effectively compete. Thus, there are significant challenges to the PSFs marketing and PR functions to convey an appreciation of the firms competencies. The firm must learn to deal with growth, both by implementing appropriate business systems and by learning to operate across multiple locations. These points are well illustrated by Segal-Horn and Dean: Whilst you are all around the [same] table you can organise things, you know what is happening, you can see what letters are coming in and going out. Once it gets to something bigger you have to have proper systems. (2009: 48). This quote illustrates how small PSF companies have loose structures, but efficient ways to make decisions that give them added agility in the marketplace. At this stage we can consider two separate groups of growing firms: those that grow by following clients and those that move unaccompanied to seek out new markets. The former category (PSFs that follow clients) has major advantages during this early phase, not only in the financial sense, but also in the legitimacy gained by association with an established client in the new market. The early experiential learning may be less intense for those firms with the initial advantage of followed clients, but those PSFs that survive
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on their own will build better capabilities on which to base future growth success. In a sense, they are tougher and able to take the competition head-on without the cushion of established clients. For example, such a firm is more likely to invest in experiential knowledge relevant to selecting suitable locations, suppliers, partners, and information systems in cities that are remote from its home base. To succeed, growing PSFs need the capability to constantly learn about their clients needs, develop their client services, and integrate these capabilities across their growing network of clients and professionals. For this growth to be profitable, a contemporary knowledge-intensive service firm needs to "cross-sell" new services to existing clients In order to achieve these capabilities, expanding PSFs employ a series of integrating mechanisms to enable their professionalssome from newly merged officesto get to know one another in order to promote the crossselling of services. An example from practice is cited by Brock et al. (2006: 487): After the recent merger between Reed Smith and Richards Butler, the top managers were quick to stress cross-selling and client referrals. As part of this strategy a senior partner was made responsible for ensuring cross-selling between the firms Apart from setting the overall structure to facilitate integration, successful firms use a combination of communication strategies (Tursi, 2005) and integrative mechanisms to encourage and enable cross-selling. Brock et al. provide the following examples: [A] leading global law firm, in partnership with a prominent Business School, has a series of week-long training programs for its top lawyers. One of the exercises consists of a cycle whereby each participant posts a sheet of paper listing the three or four things for which I need help followed by a rotation whereby they go around sticking yellow I can help stickers on the original sheets. Another exercise used in-house by the same firm is
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called speed-dating for lawyers that consists of brief, one-on-one sessions for people to describe their practice, their clients, the possible opportunities, and to encourage other participants to respond and to proffer their suggestions and opportunities Other integrative mechanisms suggested by Segal-Horn and Dean (2007) include the creation of common IT platforms, HRM practices, training programs, partner retreats, social events, and secondments as important managerial tools for growing and globalizing law firms.

Mature growth
By this stage, the PSF is dominant in its domestic market and it is likely to suffer the diseconomies of scale mentioned especially if it either struggles to wrest clients from established competitors or diversifies into service areas beyond its traditional capabilities. There are managerial and organizational approaches to maintain profitability by exploiting the partnership-professional nexus, including delegating routine work to lower level employees and manipulating the non-equity partnership ratios. Additional growth typically comes either from expanding markets or from taking market share from incumbents. We now turn our attention to the process of new market development and the internationalization of PSFs, examining the three stages of development.

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GLOBAL CAPABILITIES OF SERVICE FIRMS

Early Internationalization

Just as a growing firm in a domestic context deals with the liability of newness, so does a firm entering a new market have to deal with the liability of foreignness. In their study of experiential knowledge in small internationalizing firms, Michailova and Wilson (2008) remind us that not all founders and managers of internationalizing firms are interested in and engage in learning. They go on to imply that ability and willingness to learn are key success factors for internationalizing small businesses. Segal-Horn and Dean point out that clients expect a sophisticated and seamless experience across borders, the client is saying I want to operate at a level of granularity that makes it the same for me around the world, standardizing things. (2009: 48). At this stage we need to distinguish among PSFs that begin in large countries that have multiple business capitalslike Brazil, Germany, India, and the United Statesversus those that are born in smaller economieslike most European countries. We use the multiple business capital distinction because internationalizing PSFs generally serve governmental and large corporate clients, and these tend to be based in such business capitals. The distinction is relevant because growing PSFs in these large economies generally first build up their growth capabilities domestically, and later internationalize their solid organizational foundations and capabilities.

Intermediate internationalization
The fact that several time zones, cultures, and legal systems may separate existing clients, existing staff, new staff, and prospective clients in the global firm certainly
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complicates implementation of PSF internationalization strategies. Global integrating mechanisms like a common language can be important tools. In general, socialization tactics, like expatriate assignments and exchanges, are effective for the exchange of

ideas and the easing of knowledge flows. This is illustrated by the following quote I spent a little while in Italy but I met all the tax people, I could put names to faces, and if you had a transaction with Italian tax advice, and youve got a face in your head, its so much easier to pick up the phone and its so much easier if you think theyre not quite doing what they should be doing to say to someone if youve met them rather than someone you dont know. The importance of having personal contacts and relationships in the host market is underscored here. Thus, we can identify an intermediate stage of internationalization when the firm has committed substantially to its overseas offices, when about a third of all professionals are based abroad. For those firms that continue to internationalize, we can assume that the initial experience of internationalization was positive and that the firm can now use this experience to continue to expand into attractive markets

Mature internationalization
The final phase would be when the firm reaches high levels of internationalization, whereby more than half its professionals are outside the home country. The firm has evolved away from its home country orientation to be truly multinational. However, the relatively simple organization structure and infrastructure that served the firm when it was primarily located in its home base, necessarily need to be replaced by more complex systems to cope with the myriad legal, cultural, tax, and geographic contexts in which it operates. At this stage, the firm would have to invest in separate international

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management, IT, and control infrastructure, often with regional administrative offices overseas as well.

DISCUSSIONS
We discussed two liabilities associated with growth and internationalization, i.e., the liability of newness and the liability of foreignness. These two liabilities can form the basis for two key dimensions associated with a growing and internationalizing PSF. That is, we can construct a pathway that captures the time dimension of growth and internationalization. The size of the home country has been determined to have an impact on the context of the internationalizing PSF and the internationalization-performance results. It seems as though firms residing in small countries face intermediate internationalization prior to facing intermediate growth (or scale) because their home country potential is scant and growth can only be achieved by going global. These firms will face a strong liability of foreignness and their ability to adapt will influence their ability to grow. Negative profitability following internationalization is associated with such a process. Over time, if the firm succeeds in entering the new market and in addition captures the local knowledge, it is well positioned for growth globally. In contrast, a PSF from a large country does not need to contend with internationalization until it has exhausted the large domestic market potential. This domestic growth enables the firm to devote resources to international expansion and to leverage its domestic market power, brand, and know-how to operate across various locations. PSFs in large countries thus

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first face a strong liability of newness and if they succeed against the competition, then internationalization will follow.

ADVANTAGES OF GOING INTERNATIONAL Export Opportunities for Small Businesses

Going global is an important opportunity for small business owners in the United States. Any entrepreneur can use the Internet to market products and services to buyers in foreign markets. He must build a system for satisfying the needs of foreign consumers, such as shipping goods overseas and paying appropriate export fees. Other types of businesses that provide all of their services through the Internet can go global, marketing to foreign consumers online, without some of the difficulties of creating a global supply chain and different distribution networks.

Finding Successful Foreign Partnerships

Another benefit of going global is enjoyed by companies of different sizes, not just small businesses.Your U.S. company can build relationships with local companies and individuals in foreign countries. These business partners can help you increase the company's global infrastructure. Many times, your company saves money because expenses (such as labor costs) charged by business partners overseas are cheaper. Also, foreign workers carrying out your company's operations are familiar with the needs of local consumers; they live and work in the same foreign culture.

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 Diversification
Another benefit of globalization is that a company can diversify its consumer base and revenue streams. A company that markets only to U.S. consumers is especially vulnerable to domestic economic trends. With consumers in other countries buying your products and services from the international division, your company can maintain revenue streams in foreign markets. Your company can stay afloat even when the U.S. economy fails to provide enough consumers.

Attract Large Business Customers

When you take your company global, it increases the ability of your business to attract large corporations as clients. These companies already have their own global operations, and they need to give their business to globalized companies diversified and structured to accommodate their needs. If you're trying to market products and services to large companies, globalization will get their attention, showing big clients that your company aggressively pursues growth in foreign market.

DISADVANTAGES OF GOING INTERNATIONAL Cultural Barriers

One of the problems many businesses run into when going global is cultural barriers. What sells well in one country may not necessarily sell well in another. If you do not consider the culture of the country you are expanding into, it could backfire. Some countries might take offense to your marketing efforts or your products. Companies must conduct market research before venturing into another country.

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 Currency Exchange
Another potential problem when expanding globally is currency exchange issues. The value of your country's currency can hurt your ability to trade with other countries. If you are buying supplies from another country, you want your currency to be strong. However, when selling products to another country, a weak currency can help you increase sales. Since exchange rates fluctuate frequently, this can be a source of problems for many businesses.

Regulations
In some cases, you may run into regulatory issues. Countries often engage in free trade agreements that make it easier for companies to sell to other countries. Other countries make it difficult on sellers to move into their territory. You may have to pay unusually high tariffs or taxes throughout the process, which can put your product at a disadvantage. Companies will have to gauge whether the hassle of moving into certain countries is worth it.

Product Customization
When selling to another country, you may find it necessary to customize your products. For example, you may need to put labels on your products that are written in other languages. If you have a limited budget, this can be difficult. Product customization costs money and takes extra time to implement. If you have a global brand, you may not need to customize anything, but without a sufficient amount of marketing, this can be hard to achieve.

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TEN COMMON INTERNATIONALISING MISTAKES

1) Insufficient knowledge of consumers behaviour, attitudes, values, wants and needs in the foreign market. 2) Failure to segment the market and target carefully 3) Lack of an international marketing planning process. 4) Using cost to set price rather than the products perceived market value. 5) Short term entry strategy rather than a long term entry strategy 6) Incompatibility of corporates organisation structure with international marketing strategy. 7) Failure to have objective market based product/ service evaluation carried out in the foreign market 8) Failure to market in the foreign country in the appropriate way instead of using the marketing approach used back home. 9) Overestimating the companys international strengths with respect to finance, people, production and marketing 10) Failure to secure commitment from the top in international marketing.

IMPORTANT FACTORS FOR ACHIEVING SUCCES

1) TOP MANAGEMENT COMMITMENT 2) PRODUCT DEVELOPMENT CAPABILITY 3) MARKETING ORIENTATION OF THE COMPANY 4) DEDICATION OF CAPACITY FOR EXPORTS
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5) SETTING UP OF A EXPORT DEPARTMENT 6) STRATEGIC ALLIANCES 7) MOTIVATED LABOUR FORCE

NOTE: Based on actual survey of assisted/ potential export companies in India by Exim BankS

OUTSOURCING CHALLENGES FOR 2013

With the economy paragliding in the winds of uncertainties, challenges are jetted out on all major industries including the rapidly growing outsourcing industry. To be geared up for the upcoming challenges of 2013 is definitely a pressing business need for both the outsourcers and the service providers. So let's look ahead and see what challenges 2013 may dish out to the outsourcing industry.

1. Outsourcing giants like India and China are struggling

With an overall shaky economy there is dire need to check and analyze the vendor's financial health and its ability to overcome the rough economic patch for a sustained partnership. Outsourcers should be extremely cautious and follow due diligence while choosing vendors, as small vendors may easily close their businesses if the situation continues to be challenging.

NASSCOM predicts slow growth for India IT-BPO Industry in FY 2012-2013 with a lesser growth rate of around 14% with revenues of around US$115 billion in FY 2012-13 compared to revenues of around US$ 101 billion at 15% growth for FY 2011-12.

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2. Changes in outsourcing laws

The economic crisis and local political changes may force changes to the outsourcing laws in European and Asian countries. So as outsourcers you need to keep a check on the same and act accordingly.

3. To outsource or not, in national interest

This leads to another challenge, whether to outsource or to near-shore. This primarily rests on two factors: one, to upkeep the national interest and economy by near-shoring, which also has other cultural and geographic advantages; and two, to continue outsourcing and ushering global economic sustenance at cheaper costs and competitiveness, and at the same time embracing economic challenges that the Euro zone and the other Asian economies are facing.

4. Greener partners
Ensuring that your service provider follows green norms for a greener environment is partly your responsibility; you can also mandate them to follow environmental norms to keep your partnership going. One of your challenges is to make your service provider follow these norms and become a true global player.

5. Understanding new participating economies

As more and more emerging economies vie for a part of the outsourcing opportunity, the competition mandates them to be more lucrative but with hidden challenges. So exercising extreme care is really important when going for these new service providers. You have to study their work culture, living standards, government policies, tax issues, political stability, work experience, etc., before signing them in.
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As per the global outsourcing report by Mark M and Dr. Frank, over 30 highly competitive economies will compete for an outsourcing opportunity in the coming two years.

6. Partnering with service providers

It is no longer outsourcing and getting relieved of the task, it's more about understanding, partnering and expanding your business in the service provider's country. This is extremely lucrative and also challenging, but it's a challenge worth taking by partnering with your offshore service providers, who with their nativity edge can help you expand.

Network Outsourcing Services India

Outsourcing network services to India is a relatively new practice, but there are a growing number of companies providing quality network management services. Several North American and European firms are realizing the potential of network outsourcing services in offshore locations like India. Several well established Indian IT companies have extended their gamut of services to include running networks operations centers for global customers. These help to not only improve productivity and cut costs on the infrastructure side, but establish that cost efficiency and quality are not mutually exclusive.

Network Outsourcing Services in India

Traditionally network management services was a space dominated by names like IBM, NCR, Compaq, and HP. Recently, however, there are several Indian companies that are gradually building their skills in this area and offering great value to companies wishing to outsource their network management services. Though this sector is still in it's nascent
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stages, domestic demand has triggered the entry of local system intergrators, hosting providers, and facilities management companies into this area. Though there are apprehensions about security and loss of control in offshore outsourcing network services, well established names like Wipro, Microland, Infosys, Bangalore Labs, and others are creating a path for others to follow. By setting up world class Network Operations Centers which handle monitoring networks, analyzing traffic, identifying bottlenecks, alerting and protecting customers from impending problems, ensuring 99 percent uptime for client networks, and disaster recovery, Indian companies are gradually convincing international companies that remote management from offshore locations is a great option.

What is the potential for network outsourcing services in India?

Along with the well established names which currently dominate this sector, several other small and medium size companies are getting into the business. They have good reason to as IDC figures pegged the network infrastructure services market at Rs 753 crore during 2000-2001, and it is growing at 26 percent annually Though there is still a long way to go before Indian companies make a dent in the global market there are several companies attempting to show global customers the potential of outsourcing network management.

Who are the Indian players?

Companies like Bangalore Labs and HCL Comnet have made significant investments in setting up world class NOC Centers. Others like Wipro, Microland, Satyam Infoway, and Global Telesystems, have added management services to their existing portfolios.

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Who are their customers?

Though there are still not too many international customers, these companies cater to some of the biggest names in the domestic sphere. Bangalore Labs now provides network management services to L&T Information Technology; systems & application management services to Skumars.com; managed security to Hathway and Cyquator. HCL Comnet, is providing management services to Philips, Sanmar, Bajaj, IOCL, SBI, 3M, TVS-Suzuki, HomeTrade, IndiaTimes, CitibankOnline, HDFC Bank, ICICI Bank, Fabmart, India Cements and others. Microland manages one of the few NOCs in India that manages the infrastructure for a BPO company. It set up it's NOC in 1999 and functions 24 hours a day all through the year. Microland handles network management for customers like Blue Dart, Heinz, IDBI Bank, NetCom Systems, and a Fortune 10 customer. Around a third of these customers are in India. Ramco Systems has established itself by catering to large customers like the Bombay Stock Exchange, Indian Oil, Ericsson, Coca Cola, Oil and Natural Gas Commission, and the Tata Institute of Fundamental Research. Wipro started with domestic customers and then moved into the global market. Almost 55 percent of the infrastructure management services at Wipro are carried out offshore.

How do they address some of the main concerns?

Though the industry is still at a nascent stage there are efforts to keep abreast of changes in the global market and cater to these. Security: Companies like Wipro and Microland have stringent security rules in place to guarantee confidentiality and as safe guards against theft of any information. For
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example, Microland has everything from physical to network security managed to comply with international standards. To monitor the network as well as physical security there is a specialized team whose main responsibility is to implement the BS-7799 security standard throughout the organization. Quality: All the vendors in the infrastructure management space are keen on following quality practices, which are required to cater to global customers. For example, Wipro follows the ITIL (IT Infrastructure Library) framework to develop its process framework. Satyam Infoway's has the distinction of having the first TCP/IP based network in the country, and the company has also earned the ISO 9001-2000 certification for a data centre, network management and customer care Changing Mindsets: Many companies are not comfortable outsourcing network security management offshore. Companies like Wipro and Microland have tried to alleviate this fear by combining onsite and offshore management before moving completely offshore. For example, Wipro has NOCs in the US, UK, and Japan. Once the client is confident of abilities, the work can be moved offshore. There is also a tendency to outsource to cut costs. However, Wipro is trying to show customers how with their expertise in this industry service levels and productivity levels have been enhanced.

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CONCLUSION
The potential for globalisation as a competitive strategy available to service industries is still poorly recognised. It is a view which attracts criticism and hostility. Evidence remains piecemeal and often anecdotal. For every service company which is reconfiguring its business globally, there remain a dozen which are not. However it is the contention of this paper that the race for pre-eminence in international services trade has &ready begun. The historical pattern of competition in the manufacturing industries can be seen repeating itself in the service sector. Those companies which have recognised at an early stage the trend to

internationalisation of services and have begun to reorganise their businesses accordingly, are likely to be most strongly placed to meet future developments. The service industries are going through a period of rapid evolution which is changing the nature of competition in service businesses. This paper has considered changes in the structure and environment of the service industries, which create potential for globalisation strategies and global configuration to be adopted more widely by service companies. Some service companies have already leveraged existing strengths to establish identifiable worldwide market presence. It is argued here that this trend will be accelerated by the combined impact on the service industries of global market segmentation, reductions in structural barriers to international trade through

deregulation, growing concentration of service industries and the far-reaching effect of IT on every aspect of service businesses.

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